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Oil futures lost ground early Wednesday on worries about the demand outlook, while traders awaited official data on U.S. crude and product inventories.
Price action
-
West Texas Intermediate crude for October delivery
CL00,
-1.48% CLV23,
-1.48%
dropped 93 cents, or 1.2%, to $78.71 a barrel on the New York Mercantile Exchange. -
October Brent crude
BRN00,
-1.38% BRNV23,
-1.38% ,
the global benchmark, was down 97 cents, or 1.2%, at $83.06 a barrel on ICE Futures Europe.
Market drivers
Oil futures were on track for a three-day losing streak after last week snapping a string of seven straight weekly gains.
“The rally in oil appears to have run out of steam for now. China’s macro issues, along with a growing expectation that maybe the U.S. Fed is not done with its tightening cycle have weighed on oil more recently,” Warren Patterson and Ewa Manthey, commodity strategists at ING, said in a note.
Troubles in China’s property sector have added to concerns over lackluster economic data from the world’s second-largest oil consumer. Investors were awaiting Federal Reserve Chair Jerome Powell’s speech at an annual symposium on monetary policy in Jackson Hole, Wyo., on Friday.
A broadly stronger U.S. dollar is also providing headwinds, they said. A stronger dollar can be a negative for commodities priced in the unit, making them more expensive to users of other currencies.
Iran, meanwhile, has quietly increased its output by around 400,000 barrels a day to a little over 2.9 million barrels a day, or mbd, the highest since late 2018, the ING analysts noted, with Tehran saying it aims to hit 3.4 mbd by the end of summer, just shy of its pre-sanction pace of 3.8 mbd.
“Given much of the focus has been on Russian flows since the war, Iran has taken advantage of this to increase oil exports,” Patterson and Manthey wrote.
While crude has pulled back in August after a 15% July rally, oil continues to outperform most assets, analysts at Goldman Sachs wrote in a Wednesday note. Risks to the bank’s year-end target of $86 a barrel for Brent crude have turned “bullish to mixed” over the past month, they wrote.
Their biggest bearish fear — persistently high crude stocks — has diminished, in part due to production discipline by OPEC+ members, including a 1 mbd production cut by Saudi Arabia that began in July and is set to run through September.
“We still assume that Saudi Arabia tapers its 1mb/d extra production cut to 500kb/d in October, but Saudi production could well stay its current low 9mb/d level for longer if Saudi Arabia envisions a more aggressive price target,” the analysts wrote.
Meanwhile, the firm’s Russian production “nowcast” continue to grind lower, the analysts said, and is now slightly below their forecast of 10.7mb/d average liquids
production for the rest of the year.
The American Petroleum Institute late Tuesday reported a 2.4 million barrel drop in U.S. crude inventories last week, according to a source citing the data. The Energy Information Administration’s official inventory tally is due Wednesday morning.
Analysts surveyed by S&P Global Commodity Insights, on average, expect crude inventory data from the EIA to show a drop of 4.24 million barrels last week as refinery runs increase and exports accelerate, while gasoline stocks are expected to fall by 1.15 million barrels. Distillate stocks were expected to show little change.
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